Japan’s economy is stuck between two losing options.

Japan’s economy is stuck between two losing options.

This is how Japan’s economy found itself trapped between two losing options. Japan’s public debt is now over 260% of its GDP, one of the highest in the developed world. For years, that was manageable. Rates were at zero. The Bank of Japan brought up half the market. Investors saw no risk. But in 2025, that illusion is fading. Bond yields are hitting historic highs. Auctions are struggling. And even small interest rate hikes are threatening to overwhelm Japan’s fiscal budget. Now, Japan faces two impossible options. Raise rates and risk a budget crisis, or keep rates low and let the yen collapse. Either choice carries global consequences. Japan may reduce or even sell US Treasury holdings at a time where America’s borrowing needs continue to rise. That could push the US rates even higher, not because of inflation, but because creditors don’t show up. Japan’s debt crisis isn’t just local. It’s a warning of what happens when decades of cheap money meets economic reality.

Japan’s economy is stuck between two losing options.

Raise rates—and risk a budget crisis.
Keep rates low—and watch the yen collapse.

With debt at 260% of GDP, even small rate hikes are shaking global markets.
Japan’s next move won’t just impact Tokyo—it could hit U.S. debt and borrowing costs worldwide.

Decades of cheap money are running out.

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